Taxpayers are being warned to pay any tax due by the 31 January deadline as HMRC interest rates hit their highest rate for more than 20 years
The interest for not paying self assessment tax on time has been charged at 7.75% since last August and penalties accumulate for late payment.
The self assessment tax deadline is rapidly approaching and if any outstanding assessments are not paid by 31 January charges can quickly mount up, warn accountants at Blick Rothenburg.
Through 2023 the late payment charge increased from 6% on 6 January to a high of 7.75% on 22 August 2023.
In April 2020 the late payment interest rate was just 2.60% then went up to 2.75% in January 2022 when the Bank of England raised the base rate. There were a further eight increases in 2022 to 5.50%.
January 2023 saw a further increase to 6%, with five increases last year to the current high of 7.75%. This is the highest rate since it was 7.5% in May 2001.
Stefanie Tremain, tax partner at Blick Rothenberg said: ‘If any tax due by 31 January 2024 is not paid in time, HMRC will charge interest. Currently at a rate of 7.75% per annum, from the due date to the date of payment.
‘In addition, a 5% penalty will be charged if the 2022-23 balancing payment is not paid within 30 days of the due date, with an additional 5% penalty charged if the tax remains outstanding after six months and 12 months.’
Tremain advised that taxpayers should ‘consider making an estimated payment’ to avoid additional charges, even if it is not exactly correct at the time.
Filing a return after midnight on 31 January will result in a penalty of £100, then after three months a £10 a day penalty kicks in until the payment is made. This can go up to a maximum of £900.
Tremain said: ‘If your tax return remains outstanding after six months, a tax geared penalty will be charged at the rate of £300, or 5% of your overall tax liability if that is higher.
‘If your return is over 12 months late, another £300 (or 5% of the overall tax liability if greater) penalty will be charged.’
However, there are some excuses HMRC consider to be reasonable for filing late. These include a relative passing away close to the deadline, you were in hospital or had a life-threatening illness, your computer broke, HMRC services were down and lastly, a fire, theft or flood stopped you from being able to complete the return.
Amendments to a tax return can be made to a tax return up to 12 months from 31 January 2024, although you will be charged interest if it was underpaid.
Tremain said: ‘You could, however, amend your return if you realise you have missed a relief you are entitled to, such as relief for Gift Aid donations or pension contributions, which means you may be due a tax refund.’
A Time to Pay arrangement can be set up if individuals are struggling to pay their bills but ‘such arrangements are specific to each taxpayer and will depend on your own individual position as to whether HMRC agree to a Time to Pay and, if they do agree, what the terms will be,’ Tremain added.
